Why HP Stock Slumped 11% This Week: Tariffs, Margins, and the Road Ahead

The week of May 28, 2025, marked a turning point for HP Inc. (HPQ), as its stock price plummeted 11% following a stark earnings report and revised guidance. The decline underscores a critical crossroads for the technology giant: can it navigate tariff-driven margin pressures and weakening demand, or is this a harbinger of deeper structural issues? Let's dissect the numbers and assess whether HP's pullback presents a buying opportunity or a red flag.

The Immediate Catalyst: Earnings Miss and Guidance Cut

HP reported second-quarter fiscal 2025 revenue of $13.2 billion, a modest 3.3% rise year-over-year. However, non-GAAP EPS of $0.71 missed consensus estimates by 12%, while the company slashed its full-year EPS guidance to $3.00–$3.30 from an earlier $3.45–$3.75. This revision reflects the $200 million annualized tariff burden stemming from U.S. trade policies, which HP has struggled to offset. Even with revenue growth in its Personal Systems segment (+7%), margin compression—down to 4.5% from 5.7%—highlighted the toll of rising costs.

Backtest the performance of HPQ (HP Inc.) when 'buy condition' is triggered on quarterly earnings announcement dates, and hold for 20 trading days, from 2020 to 2025.

Canon and Dell, for instance, have maintained higher margins by diversifying into services or higher-margin segments. HP's Printing division, once a cash cow, now faces a 4% revenue decline, signaling a broader issue: the PC market is stagnating, and HP's core businesses are under siege.

Valuation: Discounted for Disruption or Distress?

HP's stock now trades at just 9.5x its revised 2025 EPS guidance, a significant discount to its five-year average of 14x. For value investors, this could signal a bargain—if HP can stabilize margins. But the risks are stark. Its free cash flow turned negative (-$95 million) in Q2, and long-term debt has risen to $9.29 billion, raising leverage concerns. Meanwhile, the PC market's decline—outpaced by mobile devices—suggests HP's growth engine is sputtering.

The Bull Case: A Turnaround in the Making?

HP isn't without defenses. CEO Enrique Lores has launched a “future-of-work” strategy, emphasizing hybrid办公 solutions and AI-enhanced devices. The company's $2.7 billion cash reserve and $100 million in Q2 buybacks signal commitment to shareholder value. If HP can fully offset tariffs by Q4 2025, as management claims, margins could rebound. Additionally, its Printing segment's 19.5% operating margin (despite revenue declines) shows resilience in a shrinking market.

The Bear Case: Structural Headwinds Persist

The bears argue that HP's problems are systemic. The PC market's long-term decline—down 14% annually since 2021—means HP must innovate beyond its hardware roots. Competitors like Dell have thrived by bundling software and services, while HP's Printing division faces existential threats from inkjet alternatives. Worse, the tariff issue isn't going away: U.S.-China trade tensions are escalating, and HP's supply chain overhaul may take years to pay off. Historically, a buy-and-hold strategy triggered on earnings announcement dates has underperformed, yielding just 16.45% versus the benchmark's 99% return since 2020, further supporting the bearish case.

Final Analysis: Buy the Dip or Bail?

HP's valuation is compelling, but its path to recovery hinges on execution. Investors must ask: Can HP's margin improvements and cash flow stabilize by late 2025? If yes, the stock could rebound sharply. If not, the $3.00–$3.30 EPS range may prove too optimistic, leaving HP vulnerable to further downgrades.

For now, HP offers a high-risk/high-reward trade. Aggressive investors might buy here, betting on a margin rebound and undervalued stock. Conservative investors, however, should wait for clearer signs of cost mitigation and top-line growth. The stock's 22% year-to-date decline suggests the market is skeptical—but markets often overreact. HP's fate rests on whether it can turn its strategic moves into sustainable profitability.

Historically, a strategy of buying HPQ on earnings announcement dates has delivered poor risk-adjusted returns, with a maximum drawdown of 60.69% and a Sharpe ratio of 0.09 since 2020. This underscores the challenges of timing investments around quarterly reports and reinforces the need for a long-term perspective.

In the end, HP's 11% drop is neither a clear buy nor a definitive warning—it's a call to scrutinize execution. Monitor cash flow trends and margin improvements closely. Until HP proves it can navigate tariffs and reinvent its business model, this remains a gamble for all but the most patient investors.